Cash Incentives for Investments

Investor production facility set-up costs can be significantly reduced using a number of different measures from Germany's investment incentives package. Cash incentives provided in the form of nonrepayable grants make up the main components of this package.

There are two major programs directing the allocation of these cash incentives:

• The "Joint Task for the Promotion of Industry and Trade" or "Joint Task" (Gemeinschaftsaufgabe, GRW).
• A special cash incentives program to promote investment activities in Eastern Germany called the "Investment Allowance" (Investitionszulage, IZ).

Cash incentives are usually administered by the German states.

The Joint Task program is issued by the Ministry of Economics and Technology. It regulates the distribution of non-repayable grants for investment costs throughout Germany. Money available through this program is usually distributed in the form of cash payments which are based on either investment costs or assumed wage costs.

The actual incentives amount granted varies from region to region subject to economic development level. Regions with the highest incentives rates offer grants of up to 30 percent of eligible expenditures for large enterprises, up to 40 percent for medium-sized enterprises, and up to 50 percent for small enterprises respectively. These higher incentive rate regions are mainly situated in Eastern Germany.

Several regions within the western parts of Germany and Berlin are also designated incentives regions, but at a lower incentive rate level than their eastern counterparts. In these regions, large enterprises can receive subsidy rates of up to 15 percent, medium-sized enterprises up to 25 percent, and small enterprises up to 35 percent of eligible project costs respectively.

Notes: 
1 Includes a bonus of 20%,
2 Includes a bonus of 10%,
3 Lower level of incentives provided in Dresden and Leipzig,
4 The areas of south-west Brandenburg, Halle, Leipzig, Lüchow-Dannenberg and Uelzen will be reviewed by the EU Commission in 2010 and could be reduced to the lower level from 2011 on,
5 “De-minimis-rule“; max. EUR 500,000 until 31 December 2010 possible

The Investment Allowance (Investitionszulage, IZ) is a special incentive program created to promote investment activities in Eastern Germany. As such, the program is only open to investment projects settling in Eastern Germany.

Eligible states include:

• Berlin
• Brandenburg
• Mecklenburg-Vorpommern
• Saxony
• Saxony-Anhalt
• Thuringia

The Investment Allowance usually takes the form of a tax-free cash payment but can also be allotted in the form of a tax credit.

The program is based on the Investment Allowance Act 2010 which came into effect in December 2008. Investors automatically receive Investment Allowance funding (subject to all eligibility criteria being satisfied) when investing in Eastern Germany - without having to go through general incentive program application procedures.

The Investment Allowance can be combined with investment grants received under the auspices of the Joint Task program. However, the overall sum received from the two programs combined may not exceed the maximum possible incentives rate of the respective region.